Practice Quiz

FINRA Series 6

Category - Series 6

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Sarah Bean is a registered representative with NewWave Investments, a family of mutual funds. She has recommended one of NewWave’s funds to a client and given him a prospectus. The prospectus provides information about the fund’s breakpoints and indicates that an investment of $25,000 or more will lead to a reduced front-end load. The prospectus also clearly explains the details of a letter of intent. Sarah’s client invests $23,000 in the fund then and there without even opening the prospectus. Has Sarah violated any of FINRA’s rules of conduct?
  1. No. Sarah properly provided her client with a prospectus prior to selling him shares of the fund.
  2. Yes. Sarah is required to explain the concepts of breakpoints and letters of intent to her client.
  3. Yes. Sarah needed to tell her client that he would have to read through the prospectus to ensure he understood all aspects of the investment before she could take any money from him.
  4. Yes. Sarah is not permitted to accept funds from a client without the presence of her immediate supervisor.
Explanation
Answer: B - Yes. Sarah is required to explain the concepts of breakpoints and letters of intent to her client and her failure to do so is a violation of FINRA’s rules of conduct. A registered representative selling mutual fund shares is required to explain the salient facts contained in a fund’s prospectus to a client before selling him the fund shares. Sarah’s failure to do so is deemed “inconsistent with just and equitable principles of trade.”
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